Home buyers need to come up with the money for a winning bid - even in a declining market.
“When the residential real estate market is a rising market, most people — perhaps with the exception of first-time buyers — are happy homeowners and investors,” wrote Justice Mark Edwards in a case released earlier this year.
“When the market turns and drops,” the Ontario Superior Court justice continued, “it is not for the faint of heart."
“The facts in the case of Gamoff v. Hu tragically demonstrate how one family, presumably desperate for their dream home, became embroiled in a bidding war and overextended their ability to finance the purchase price of that dream home,” the justice added in his decision.
Early last year, Douglas and Sheila Gamoff owned a property on Wilmac Ct., in Whitchurch-Stouffville.
They listed their property for $2 million with a local brokerage. Within five days there were 18 showings and three offers.
Yixing Hu and David Lea submitted an offer for $2,050,00, but were told it was too low.
Although they did not want to get involved in a bidding war, they ultimately signed an offer of $2,250,000, which was accepted.
They paid their first deposit of $30,000 with the offer, but failed to pay the second deposit of $90,000 due a few days later.
On that day, Hu and Lea told the sellers they did not have the financing required to close the transaction. Each side hired a real estate lawyer.
Shortly afterward, the Liberal provincial government announced the imposition of a 15 per cent, non-resident speculation tax. The tax had the immediate effect of causing a significant cooling of the real estate market in the Greater Golden Horseshoe area.
The Gamoffs relisted the property at $2,250,000. There were no offers between May 1 and May 17, so the listing price was dropped to $1,998,000. By July 26 there were still no offers and the price was reduced further to $1,798,000.
At the end of July, the sellers finally accepted an offer to sell at $1,780,000. The transaction closed on Oct. 3, 2017.
The Gamoffs sued Hu and Lea for their losses. This past March, the parties were in court where the Gamoffs asked the judge for what’s known as a summary judgment: A court ruling on undisputed facts without a full trial.
The Gamoffs argued their losses were $470,000 — the difference between the $2,250,000 price in the first offer and the eventual sale price of $1,780,000.
The issue for Justice Edwards was whether the sellers did everything possible to minimize the damages they suffered.
Ultimately, the judge found in favour of the plaintiffs and awarded them $470,000 plus the out-of-pocket expenses they incurred.
The judge’s final words are a lesson to all homebuyers in an uncertain market.
“I have every sympathy for the defendants,” he wrote.
“With the changes in the real estate marketplace in the Greater Toronto Area, I have every expectation that there may be more cases where purchasers find that they have overextended themselves in a declining market.
“Purchasers would be well-advised to consider making their offers to purchase contingent on financing, and for the sale of their existing home if they have one,” Justice Edwards added.
Top image credit: MHJ
Bob Aaron is Toronto real estate lawyer. His column appears on this blog, Move Smartly, and in The Toronto Star. You can follow Bob on Twitter @bobaaron2 and at his website aaron.ca.
September 19, 2018Legal |